Barclay’s analyst James Ratcliffe has initiated coverage on Sirius XM (NASDAQ:SIRI) with an underweight rating and a price target of $2.00. While the news may be frustrating to many Sirius XM investors, the research note does offer some balanced viewpoints that the investment community needs to consider.

Ratcliffe notes that he believes that Sirius XM is actually quite healthy, and will not really have an issue in meeting guidance, that there are some aspects of the company where he feels that the market is placing the cart before the horse. As has become pretty standard, the rating and price target boil down to valuation, and what multiple Sirius XM trades at. Simply stated Ratcliffe feels that Sirius XM currently trades at too high a multiple.

“We believe the SIRI business is healthy and expect material growth in EBITDA [earnings before interest, taxes, depreciation and amortization] and FCF [free cash flow], but believe, at 14x 2013E EBITDA and nearly 19x 2013E fully-taxed FCF, growth is more than priced in at current levels,” he writes. “For investors seeking exposure to SIRI operational performance, we prefer Liberty Media [the company’s largest holder with a 40% stake] which allows investors to purchase SIRI shares for a more reasonable ~$1.61, even assuming a 20% discount on Liberty’s other assets.”

Setting aside the basis of valuation for a moment, Ratcliffe does bring up a major point that I have spoken of in the past. If an investor is looking to be invested in satellite radio, should investing through Liberty be the route taken? Liberty holds approximately 40% of Sirius XM in preferred shares. Many have pondered Liberty’s strategy and feel that the media company will make a run at getting a majority position in Sirius XM.

“We believe Liberty has ample liquidity for this move and could increase its stake through forward purchase commitments, which wouldn’t require an interim announcement that the stake has increased. While we don’t expect a repeat of the Liberty/DirecTV transaction, in which Liberty holders got a 6-7% premium, we also don’t expect a material discount.”

Whether SIRI investors like it or not, a position in Liberty media (NASDAQ:LMCA) could be had at a relative discount to trading SIRI. This also must be factored into the equation.

“Given the size of the addressable market (primarily in-car audio), and the quality of SIRI’s content, we believe that growth on both platforms is entirely compatible,” he writes. “Using streaming media in-car is not without cost; a customer on a tiered wireless data plan using Pandora whenever he’s in the car would generate ~$26/month in usage charges”

Meanwhile, Ratcliffe thinks that Liberty Media this year will split off its 40% stake in the company. “Moving to greater than 50% ownership would require ~$1 billion in share purchases,” he writes. “We believe Liberty has ample liquidity for this move and could increase its stake through forward purchase commitments, which wouldn’t require an interim announcement that the stake has increased. While we don’t expect a repeat of the Liberty/DirecTV transaction, in which Liberty holders got a 6-7% premium, we also don’t expect a material discount.”

The bottom line is that Ratcliffe is making a valuation call here, and while his model may be conservative, it is his model. No analyst opinion should be taken as gospel, but rather as a slice of the overall opinion of an equity. Citigroup has a more aggressive model, and Barclay’s a more conservative one. Perhaps the truth is somewhere in the middle. Would splitting the difference and arriving at a $2.50 price target be reasonable? While very oversimplified, it may be just what investors need to consider.

Barclay’s also discusses the competitive landscape in his research. In many ways he has a similar opinion to my own. That there is plenty of space in the sector for several companies to be successful. In other words, worry about Pandora not a huge issue unless Sirius XM does nothing in reaction to the successes Pandora is having. That is one reason why I have beat the drum on the Internet side of the business so often. Sirius XM is not a leader here, and they are not even a fast follower. They need to bite the bullet and get a compelling Internet product that works. They then need to market that product in a manner that creates buzz among non-subscribers.

It has been my opinion for quite some time that Sirius XM is currently managing the stock price through trying to get every nickel to the bottom line. That works great for the short term, but sometimes, in order to keep your product top notch, you need to invest capital into areas like research and development, marketing, and customer service. Sirius XM perhaps needs a renewed focus on the product side so that consumers feel compelled to join the subscriber rolls. People can argue and debate about the quality of the business model of Pandora or Spotify, but no one can argue that the services exist, will continue to exist, and are growing with consumers rapidly. In many ways whether they make money is not material. They are getting and keeping consumer attention.

While it is interesting that this coverage was announced just ahead of the call, I would not lose sleep over it. Sirius XM is a widely traded company. Firms are now stepping up to the plate and beginning coverage. That is great news. Some analysts have a learning curve into what drives this company, and with the transparency (or lack of), but in the end, consider that there will be room for that as 2012 passes.

In summary, Ratcliffe is not a jerk, a moron, or stupid. Such statements are great for cheer leading and getting the sheeple riled up, but in the end accomplish nothing. Ratcliffe is an analyst that has presented what some may feel is a conservative model. His multiples are not below average, but his growth prospects are muted when compared to company guidance and other estimates. Instead of piling on against his opinion, read it, digest it, and compare it. There is something to learn here that a savvy investor can exploit.

Investing in a company is not about hope, nor is it about rosy glasses. It is about a marketplace that requires a wide peripheral vision that goes beyond what some investors apply to their investment.

Ratcliffe is a cheap manipulator not worthy even mentioning. These people cannot blush because they have no conscience. To come out with his downdrade 48 hours before the announcement is not only stupid but also unethical.

Ratcliffe is actually a well educated and seasoned analyst. I would not say that he is hardly worth mentioning. In fact, having Barclay’s initiate coverage is a good thing. The institution has a substantial stake in Sirius XM.

Conscience has nothing to do with this. If he had come out with a buy rating and a $3.00 price target Sirius XM investors would be singing his praises.

This was not a downgrade. Barclay’s initiated coverage. There is nothing unethical about initiating coverage, or in what Ratcliffe has for an opinion. He spells out his opinion quite clearly, and there is NOTHING in his report that does not take a reasonable (albeit conservative, approach to his stance.

This coverage is far from stupid. In fact, he is right on the money with a lot of what he has to say. He feels a multiple of 14 is reasonable. Some people want a multiple of 25.

Is Greg Maffei stupid or unethical for saying that Sirius XM is overvalued at a price in the $1.80’s?

Of course Maffei is unethical trying to sink siri’s shares to get a good buying opportunity.

Why not initiate coverage on the day of announcement or after when you can see much better what is going on. Ratcliffe could not wait two days!!! Do you think we are all idiots? Cheap. Cheap. Cheap.

Very few people realize the importance of tomorrow’s CC. This is not just a usual siri CC. You, like no one else, should know it or can sense it thanks to your siri knowledge and intuition.

I view the upcoming CC as CRITICAL MASS CC. Why is below.

1. Q4 2011 of 540K is something that we have been waiting for 3.5 years. 2. Churn may be 1.8% or lower due to siri’s flexibility allowing to extend at any time in 2011 to avoid price increase. 3. ARPU maybe closer to $12 due to much better “premium” ($200) take. 4. Q4 revenue may be over $800M for the first time. This is a milestone. 5. 2012 guidance may be very strong due to:

a. Sub growth between 1.7M and 2.0M due to auto production and sales growth; ever increasing used car market penetration; sat radio 2.0 technology appeal impacting retail for the first time in 3.5 years; price increase impact and IMPROVING ECONOMY.

Ratcliffe should be ashamed of himself. Let us give him the benefit of being just stupid rather than a manipulator.

Why should Ratcliffe wait 2 days? You are aware that he has been speaking to the company for months I hope. These models are not built overnight. They take time and many conversations with the company to develop.

Like I stated, had he come out with a buy rating and even a $2.50 price target the SIRI investors wuld be celebrating this report.

Ratcliffe is offering an opinion on a highly traded equity. Why not put that opinion out, regardless of what it is, prior to an earnings call.

I love how everyone screams that there is some sort of manipulation, but then wants him to wait until the report to put out his numbers. Isn’t timing a report, regadless of what it contains, trying to manipulate?

Churn may be lower, but it will likely carry a negative impact on ARPU. The company offered deeper discounts and was more aggressive. The 5 months for $25 turned into 6 months for $25.

ARPU approaching $12 in an interesting goal, but the company is not there yet. That number is aggressive,

Revenue of $800 is higher than the street is expecting.

Simply stated, you have estimates on every metric as a beat. I do not know if the company can accomplish that. Will you be disappointed if these miss?

Bottom line is that Ratcliffe offered up a very valuable opinion, that is actually shared by many. If you read into what he is saying, you will see that it is a pure valuation call. He sees the company as over-valued at this point. He is not alone. Others see iot as over valued….they are not alone

Earnings day will be interesting. SIRI could easily give sales guidance of 3.25 billion. FCF near 1billion. Sub additions of 1.75 million. If they do stock should pop. Get the feeling Mel has something up his sleeve with the cash. Malone is a genius when it comes to taxes. Possible for Mel to trade spectrum for his equity back. Who knows. Remember this is Mel’s swan song….he will want to do something big and sell out at a big number in next 3 to 5 years. I will hold and add shares on any dips.

No Greg Maffei isn’t stupid for saying that. But that doesn’t make it suspect. Of course he would say that. He wants Siri as loooooow as possible come March when Liberty is free to take control of the company.

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